Answer A - Incorrect. Although a Fraternal benefit society exists for the benefit of members and perhaps
the public at large, that is not where the test builder is going with this question. In insurance terms,
a fraternal benefit society is not a service organization. It is a life insurance company.

Answer B - Correct. HMO's, PPOs, and Blue Cross/Blue Shield are what is known as service providers or
service organizations. _ They don't issue policies, they write contracts... etc. They are not insurance
companies! Therefore: if the question is: "Are Blue Cross and Blue Shield insurance companies or
service providers?" you answer "Service Providers." Also, don't ask anyone from Blue Cross and Blue Shield
about this. They will tell you exactly what they feel is the company position today. We don't care and you don't
either. We only care what is on the state test taken directly from the textbook we are studying. It is our goal at
PMReview to prepare you for the exams, and blend what is found in the textbook with what will appear on
the state test so you will understand what the questions are asking.

Answer C - Incorrect. Although a labor union exists for the benefit of members and perhaps the general
public, that is not the intent of the question. In insurance terms, and that is what we are concerned with
here, a labor union is not a service organization. This is an example of the test makers using an answer which
could "sound right" in the mind of the public, but it is not the correct INSURANCE answer. Answers which
"sound right" are used a lot on the exams.

Answer D - Incorrect. "All of the above" is not correct in insurance terms. If you asked someone at the local supermarket, they
might very well choose this answer, but it won't get you anywhere with the insurance department test. Be careful
about "common knowledge" kinds of questions. If they are asking the question, it's most likely an insurance related
question.

2. Indifference to loss is an example of _______.

a moral hazard

a physical hazard

risk avoidance

a morale hazard

Answer A - Incorrect. Indifference is a hazzard, that's true, but it doesn't fit into the category of
moral because moral in LIFE insurance is "legal" or "not legal" issues.

Answer B - Incorrect. Indifference is a hazzard all right, but it isn't a physical hazzard. It's
a lifestyle hazzard. Look again.

Answer C - Incorrect. Indifference is a hazzard and has nothing to do with the four ways of handling risk,
one of which is mentioned here.

Answer D - Correct. To figure this one out, you need to realize that indifference is a lifestyle attribute, and is
a hazzard, and has nothing to do with being "legal" or "not legal." Morale, as defined in Life insurance is or are
lifestyle issues. This changes slightly when we get to health insurance.

3. Which officers at the insurance company must sign the policy to make it effective?

Answer B - Correct. Yes, that's right. Did you guess? The president and the secretary. This is slightly
confusing because the secretary in this case is the corporate secretary. The textbook doesn't have
the word "corporate" in the material, but that is what is meant by the question.

Answer C - Incorrect. No -- but a good guess! ... it sure sounds like a good possibility. Try again.

Answer D - Incorrect. Of course I like this answer. And of course you just clicked on it to see what
I was going to say, right? I have a good time teaching the 40 hour course, and a good time with
the in-class reviews, so you can expect to have fun in this on-line version as well.

4. Two men purchase a $100,000 annuity to start the payout right away. One is 65 and the other is 70. Under a Straight Life Income annuity option which of the following is true?

The older the annuitant, the smaller the monthly payment.

The older the annuitant, the shorter the payment period.

The younger the annuitant, the shorter the payment period.

The older the annuitant, the larger the monthly payment.

Answer A - Incorrect. No, it will be larger.

Answer B - Incorrect. This might be true, looking at an actuarial table, but it won't always be true. This is the second best answer. The states provide answers like this constantly. Close, but not the winner.

Answer C - Incorrect. No, the reverse is "probably" true.

Answer D - Correct. Yes, because the actuarial table says the older annuitant will probably not live as long as the younger person, and therefore, the monthly payment will be larger. It's the actuarial table!

5. Washington takes a skiing trip and breaks a leg. Upon returning home, he purchases a major medical policy and files a claim which the company disapproves. The reason they decline the claim is:

it was a pre-existing condition

no consideration

the entire contract provision

the insuring clause

Answer A - Incorrect. Yes, it was pre-existing alright, but that doesn't have anything to do with it because he is submitting a claim for something that happened before the policy was in existence. It's like having a car accident and then driving into an auto insurance office and buying auto insurance ... and then claiming on the accident you had before the policy was in effect.
The problem is not occurring after the effective date of the policy. With a pre-existing condition, the problem exists before the effective date of the policy and continues after the effective date of the policy.
The leg did not break again after the policy was effective.

Answer B - Incorrect. Consideration is the application and the initial premium. Nothing to do with a claim.

Answer C - Incorrect. This sounds warm, but when you find the right answer, you will see that it is a better choice than this one.

Answer D - Correct. Yes... the insuring clause tells what the company is going to do and WHEN. The insuring clause spells out the dates of the coverage, which in this case the event occurred outside of the dates of coverage. He only broke his leg once. It is not an on-going "condition."
Read answer (A) for more explanation.